New York Community Bank to buy failed Signature Bank

The 40 branches of Signature Bank will become Flagstar Bank, starting Monday. Flagstar is one of New York Community Bank's subsidiaries. The deal will include the purchase of $38.4 billion in Signature Bank's assets, a little more than a third of Signature's total when the bank failed a week ago.

The FDIC said $60 billion in Signature Bank's loans will remain in receivership and are expected to be sold off in time.

Signature Bank was the second bank to fail in this banking crisis, roughly 48 hours after the collapse of Silicon Valley Bank. Signature, based in New York, was a large commercial lender in the tristate area, but had in recent years gotten into cryptocurrencies as a potential growth business.

After Silicon Valley Bank failed, depositors became nervous about Signature Bank's health due to its high amount of uninsured deposits as well as its exposure to crypto and other tech-focused lending. By the time it was closed by regulators, Signature was the third largest bank failure in U.S. history.

The FDIC says it expects Signature Bank's failure to cost the deposit insurance fund $2.5 billion, but that figure may change as the regulator sells off assets. The deposit insurance fund is paid for by assessments on banks and taxpayers do not bear the direct cost when a bank fails.

Also on Sunday, banking giant UBS agreed to buy troubled rival Credit Suisse for almost $3.25 billion.

Swiss authorities pushed for UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to reassure investors and the bank’s customers. Shares of Credit Suisse and other banks sold off this week after the failure of two banks in the U.S. sparked concerns about other potentially shaky institutions in the global financial system.

Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.

The deal was “one of great breadth for the stability of international finance," said Swiss President Alain Berset as he announced the deal Sunday night. "An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”

The Swiss Federal Council, a seven-member governing body that includes Berset, passed an emergency ordinance allowing the merger to go through without the approval of shareholders.

Credit Suisse Chairman Axel Lehmann called the deal “a clear turning point.”

“It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets,” Lehmann said, adding that the focus is now on the future and in particular on the 50,000 Credit Suisse employees, 17,000 of whom are in Switzerland.

Colm Kelleher, the UBS chairman, hailed the “enormous opportunities” that emerge from the takeover, and highlighted his bank’s “conservative risk culture” — a subtle swipe at a Credit Suisse culture that’s known for more swashbuckling, aggressive gambles on bigger returns. He said the combined group would create a wealth manager with over $5 trillion in total invested assets.

Swiss Finance Minister Karin Keller-Sutter said the council "regrets that the bank, which was once a model institution in Switzerland and part of our strong location, was able to get into this situation at all.”

The combination of the two biggest and best-known Swiss banks, each with storied histories dating to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial center — leaving it on the cusp of having a single national champion in banking.

The deal follows the collapse of two large U.S. banks last week that spurred a frantic, broad response from the U.S. government to prevent any further bank panics. Still, global financial markets have been on edge since Credit Suisse’s share price began plummeting this week.

European Central Bank President Christine Lagarde lauded the “swift action” by Swiss officials, saying they were “instrumental for restoring orderly market conditions and ensuring financial stability.”

She said the banks “are in a completely different position from 2008” during the financial crisis, partly because of stricter government regulation.

While UBS is buying Credit Suisse, UBS officials said they plan to sell off parts of it or reduce the size of the bank in the coming months and years.

The Swiss government is providing more than 100 billion francs in aid and financial backstops to make the deal go through.

A part of the deal, about 16 billion francs ($17.3 billion) in Credit Suisse bonds will be wiped out. European bank regulators use a special type of bond designed to provide a capital cushion to banks in times of distress. But these bonds are designed to be wiped out if a bank’s capital falls below a certain level, which was triggered as part of this government-brokered deal.

Berset said the Federal Council had already been discussing a long-troubled situation at Credit Suisse since the beginning of the year and held urgent meetings in the last four days amid spiraling concerns about its financial health that caused major swoons in its stock price and raised the specter of the 2007-08 financial crisis.